Taking It in Stride : A Confident Germany Greets Mark’s Steady Rise With Yawns

The latest downward lurch of the dollar has left U.S. policy-makers concerned, Japanese exporters worried, financial analysts confused . . . and the Germans relaxed.

Germans, relaxed? In a currency crisis?

The answer, apparently, is yes--at least for now.

For a number of reasons, Germans have reacted with unusual detachment to the recent rise of the mark on global currency markets--despite the fact it makes their exports more expensive, discourages investment and endangers jobs. Gone are the predictions of economic Armageddon that accompanied earlier revaluations of the mark against the dollar.

To be sure, there have been some warnings. Last week, for example, Daimler-Benz Chairman Edzard Reuter said the rise of the German mark, together with inflated wage settlements, were bound to translate into job losses in Germany.

“The unavoidable result will be the location of production plants abroad,” he told a news conference. To prove his point, he announced that a reduction of 13,500 employees, or about 3% of the company’s global work force planned for this year, would be made mainly in Germany.

Despite such developments, there are few signs of the low-grade fear that so often comes to Germans with the first hints of currency turmoil--fear driven by tales of the nightmarish hyper-inflation that ruined the country’s economy in 1920s.

As the dollar fell below $1.38 last month, even Germany’s premier Angst peddler, the mass-circulation newspaper Bild Zeitung, ignored the chance to stoke anxieties among its 5 million readers.

While it carefully noted that a German machine tool sold to an American customer last year for $580,000 would be harder to market if it suddenly carried a price tag of more than $700,000, the paper also played up the prospect of cheaper trips abroad and the fact that, for anyone paying in marks, the sticker price of a Ford Mustang with all extras has dropped by more than $5,000.

Indeed, among the general public, the most noticeable reaction to the mark’s climb has been a stampede to the banks to buy dollars to spend on cheaper-than-ever Florida holidays.

“In early March (when the dollar plunged to $1.35), we were so besieged by customers wanting dollars we couldn’t keep up,” recalled Stefan Coch, customer service representative at a large branch of the Dresdner Bank in Berlin. “They were taking $1,000 to $5,000 each.”

Germans today have greater confidence than in previous decades in their ability to compete internationally. The panicky reactions of earlier years were unwarranted, many seem to conclude, so why worry now?

“We’ve lived with this problem for years,” said Herbert Kriegsbaum, an economist at the German Machine Tool Assn. in Frankfurt. “We’ve learned to defend our market share.”

This view is shared by many experts. “German industry has adapted to a strengthening currency for most of the last 50 years, so I see no reason why it shouldn’t be able to adapt further,” concluded Andrew Bosomworth, an economist at the Frankfurt office of Merrill Lynch.

Several other factors have also contributed to the muted German reaction to the mark’s rise. Among them:

* While the mark has appreciated by around 10% against the dollar during the past two months, it has lost ground against the surging Japanese yen, a development that enhances German competitiveness against Japanese goods in crucial third-country markets.

* Some bellwether German industries, such as chemicals, hardly suffer at all because they can save on their oil-based raw materials, purchased almost exclusively in dollars.

* Laments by some politicians that the present currency-market gyrations could torpedo the dream of a European Monetary Union are not shared by the majority of Germans, who are eager to keep their Deutsche mark strong and independent.

For Germans, the mark is a rare symbol of national strength and power about which they can be proud--without having to be guilty. The mark’s surge also is widely seen as a reflection of democratic Germany’s achievements, although this sentiment is largely unspoken.

“Somehow, I find it very sad that our identity is tied more to this 45-year-old (currency) than to the works of Beethoven, Goethe and Schiller, but it is,” commented Norbert Walter, chief economist of Germany’s largest financial institution, the Deutsche Bank.

At a conference recently in Bonn, Finance Minister Theo Waigel basked in the mark’s new strength. “There can be no clearer sign of international confidence in our policies of stability,” he declared.

Perhaps most importantly, however, the relaxed mood is due to a briskly expanding economy that has so far felt little impact from the stronger mark, with GNP growth this year still projected at around 3%. The Federal Labor Office in Nuremberg announced a reduction of 153,000 jobless for March, hardly a sign of impending hard times.

Still, economists warn that if the economy begins to slow and the nation’s currency keeps its current strength too long, medium-term growth prospects could suffer considerably. In some smaller sectors, such as the leather industry, where Italy is the main competitor and the mark has appreciated by about 40% against the lira over the past two years, problems are severe now.

Bundesbank statistics also show a jump in the net outward flow of capital investment, while higher manufacturing costs would almost certainly revive the debate about German companies shifting production--and jobs--outside the country in order to stay competitive.

“It’s next year that we’ll start to feel all this,” predicted Reinhard Kudiss, economist at the German Industry Assn. in Cologne. “That’s when the real cost-price pressures are going to be felt.”

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Powerhouse Currency

The German mark has been rising in value against the U.S. dollar, but it has lost ground against the surging yen in recent months, which enhanced German competitiveness against Japanese products in third-country markets.

German marks to the U.S. dollar, weekly closes: (see newspaper for graph)

April 1995: DM 1.39

Yen to the German mark, weekly closes:

April 1995: Yen 59.86

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Source: TradeLine